The National Association of Convenience Stores has announced that it will make pumptoppers available free of charge to US retailers, to help them communicate their aggravation over escalating credit card fees to consumers and the Congress…. Read more.

Rising oil prices a gusher for card companies

Consumers are feeling pain at the pump from gas prices topping $4 a gallon but it’s not just gas they’re paying for. They’re dishing out “invisible” extra fees for using a credit or debit card when they gas up.

The interchange fees are set by Visa and MasterCard, the two largest issuers of credit cards, and supported by partner banks. Though the fee percentages themselves are fixed, the actual fee rises as the price of goods or services rises, meaning the fee for a credit card transaction can wipe out any profits the retailer may make for the transaction itself.

The fee structure hits convenience stores that sell gas particularly hard, due to the low margins and high costs of running the business.

“In 2007, credit card fees cost convenience stores $7.6 billion, more than double the convenience store industry’s profits of $3.4 billion,” said the National Association of Convenience Stores (NACS). “It has been much worse in 2008 as credit card fees have topped 10 cents per gallon, while the markup on a gallon of gas has averaged only 11 cents for the year so far.”

“After factoring in all operating expenses, retailers lose money on every gallon of gas they sell when a consumer uses a credit card,” NACS said. The retail association began a campaign of providing “pumptopper” advertisements to stores and merchants detailing the fees and how much they cost consumers.

Retailers have traditionally been forced to raise prices on all their goods in order to cope with the increased costs borne by interchange fees, and many gas station owners have recently been rebelling by only accepting cash for gas transactions and banning credit cards.

Goldstone, a lead plaintiff in the ongoing lawsuits brought against the credit card companies over the interchange fees, is planning a rally against the fees in his home city of Irvine, California for July 3. “I want to link this to Independence Day,” Goldstone said, adding that he has received support from a broad coalition, including members of the Irvine police department.

“Many of them have said ‘Good for you,'” Goldstone said, noting that many public employees live far outside the city of Irvine itself and pay enormous gas costs just to commute to and from work.

Shell Game

Although both Visa and MasterCard have enjoyed record profits since making initial public offerings for their companies, increasing public pressure over the interchange fees has pushed them to make changes in order to placate criticism, and possibly forestall the possibility of an unfavorable decision in the lawsuits.

Visa announced on June 26 that it would cap interchange fees at 95 cents for transactions made with debit cards at the pump. The fee structure change would take place on July 18, and would precede a full-scale revamp of credit and debit transactions in October.

Opponents of the interchange fees, such as Senator Dick Durbin (D-IL), applauded the measure but said more needed to be done.

“The setting of non-negotiable rates by companies with overwhelming market power not only represents a failure of the market, it pinches the pocketbook of every American,” Durbin said. “Congress needs to pass meaningful and comprehensive reform of interchange fees.”

Durbin sponsored the Senate’s version of legislation introduced earlier this year in the House of Representatives that would enable merchants to negotiate interchange fees with credit card companies and banks, referring to the Justice Department and the Federal Trade Commission (FTC) to settle the matter if an agreement could not be reached.

Others were less impressed with Visa’s move. “Unfortunately, we may not know the impact for months because Visa has said this will only affect debit card transactions on gasoline in mid-July and won’t affect credit card transactions until October,” Goldstone said, “long after the end of the summer driving season, and the opportunity for Congressional action.”

“When the tsunami hit Indonesia in 2005, Visa immediately stopped charging interchange fees on donations made to the Red Cross,” Goldstone told ConsumerAffairs.com. “If they have the power to rework their payment system so quickly, I wonder why they haven’t done it before now.”

Irvine, CA — June 29, 2008 – In honor of July 4th consumers and gas station owners alike will demand independence from Visa and MasterCard’s hidden credit card fees that add another 8-10 cents a gallon on top of already skyrocketing gasoline prices.

Service stations owners and consumers are paying record credit card fees as Visa, MasterCard, and their member banks reap the windfall from the 100% increase in the price of gasoline since 2007.

About two dollars of every $100 the consumer spends in stores or buying gasoline goes directly to the credit cardindustry in the form of the interchange fee, the biggest credit card fee you’ve never heard of. Interchange started as a fee to pay for credit card processing; it has skyrocketed in recent years. American businesses and consumers paid $42 billion in total fees just in 2007.

With $4-plus gasoline, the credit card industry typically makes 8-10 cents per gallon in interchange fees, far more than the service station owner if he or she is making any money at all. (Many owners are currently losing money on every gallon they sell.) Americans shell out as much as or up to $2 per fill up to the credit card industry every time they fill up. Except for OPEC, nobody makes more money from skyrocketing gasoline prices than Visa and MasterCard. The cost of a cashless society is way too high if you let the credit card industry set the price.

Interchange fees are set in secret by the credit card industry. The Credit Card Fair Fee Act is a solution that would create a competitive market outcome and bring transparency to the broken credit card market by allowing merchants a seat at the negotiating table.

When most were expecting the [Reserve Bank of Australia] RBA to step further forward and again confront a banking industry notorious for disregarding national competition policy in setting credit card transaction fees, the RBA is, apparently unable to pursue the issues – and the cardsharps – any further:

……………the Board……..is prepared to step back from the regulation of these fees on the condition that industry takes further steps to improve the competitive environment[1].

The Australian community is painfully well aware of banks’ preferences when it comes to managing the competitive environment: banks couple noisy complaints — four pillars bad, two pillars good – with predatory pricing practices while otherwise waiting for misfortune, such as the sub prime crisis, to set the scene for forced consolidation of retail intermediation.

For the pillars, 2007/08 was a vintage year as first mortgage brokers and then the next biggest bank were taken out of the game and some retail insurers were on the ropes, before the RBA conceded defeat on the regulation of card payment systems operating as a de-facto cartel. A well established pattern of events, similarly favouring banks, has long been aided and abetted by the RBA as a compliant regulator seemingly unable to understand how the game works: other regulators charged to protect the public interest also seem to have been gelded when it comes to dealing with the retail financial sector.

One explanation along these lines stresses regulatory failure: a decade of the RBA dilly dallying with interminable studies and inquiries – and pulled punches — allowing the cardsharps to restructure beyond its reach.

Perhaps the RBA has discreetly withheld the full story along the way, whistling for credibility as its card game was collapsing about its ears.

It was unsettling to see the unrelieved insouciance of the cardsharps over recent years when interchange fees were supposedly under threat in many countries. On reflection, the cardsharps had an ace up their sleeve, presumably as far back as 2002 when the RBA first reneged on a promise to reduce interchange fees close to zero and no explanation was given for the retreat.

A global sense of ‘was my face red’ regulators being mocked and put on the back foot will probably become clearer as a similar standoff develops in other countries where other regulators also substituted bluff and bluster for effective action.

Looming embarrassments include Europe where MasterCard is now unable to levy interchange fees on cross-border transactions while Visa still may. In the UK the OFT seems to have gone quietly to ground after a decade of threatening to outlaw interchange fees for credit cardand on-line debit card transactions.

In the US, where strong regulatory intervention is most needed, there is no sign at all of a responsible regulator: a private members’ bill before Congress that would require the cardsharps to negotiate lower card transaction fees will meet strong resistance from a banking lobby wanting to underwrite the status quo as part of a rescue strategy for a floundering industry.

We can only guess what has stayed the hand of putative regulators of retail payments systems for the past decade – it now seems that the cardsharps warned regulators that they would restructure their business, substituting ‘scheme fees’ levied directly on retailers for the interchange fees under threat of regulation. That guess may explain both the insouciance and the surrender: I am open to other explanations.

Back on the home front we will wait to see the detail of banks’ promised improvements in the competitive environment to be put to an RBA unable to regulate interchange-fees and apparently grasping for anything that imitates regulatory credibility. Presumably the banks will play the RBA’s game and promise ‘improvements’ but, with interchange fees no longer pivotal, they will not be inclined to offer anything of substance.

The form guide for bank promises is littered with disappointments.

The banking industry has grown used to doing as it likes with casual disregard for the public interest: any suggestion that local banks will now rollover and restore an appropriately competitive environment to the card transaction arena seems fancifully disturbing in its naivety.

Moreover, banks offering concessions in Australia may prejudice the cardsharps’ profitability internationally, derogating their newly acquired responsibilities to shareholders that are not member financial institutions.

…… and a layer of fairy dust

Allowing the RBA to review its own previous reform initiatives risked a loss of objectivity and, predictably, the RBA has put an unwarranted gloss on the success claimed for the outcome of its policies.

……………the reforms have met their main objectives — improving price signals; increasing transparency; improving access and creating a more soundly based competitive environment………..improved competition and efficiency in the payments system……..and substantial welfare gains to the community[2].

Words like ‘improving’ have very limited content without hard numbers that measure the extent of any claimed improvement. The persuasive hard numbers are about the relative importance of ‘credit card’ and ‘debit card’ transactions. The RBA collects and publishes these very numbers and, assessed against that critical benchmark, there has been no progress of real consequence over the past decade.

From the community perspective it is appropriate, frankly, to regard the continuing prominence of credit card transactions as evidence of the capacity and determination of the card cartel to exploit the community. As noted in a current CFO story[3]:

Ideally, card payments would be plain debits to customer transaction accounts. The transactions would be processed using an electronic network linking all banks, all retailers and all customers — locally and internationally, and over the counter, phone and internet. Within that ideal framework, retailers and customers would pay appropriate fees for transactions. Eligible customers could access a line of credit, paying interest on any net debt.

The RBA’s reform initiatives were superficially consistent with fostering this ideal – an ideal, incidentally, characteristic of card payment arrangements prevailing in some European countries where credit cards have a very minor role at best.

On the face of it, Australian retailers were given defensive options— scope to surcharge to recover excessive fees paid to banks for credit card transactions and to elect to accept only some cards (rather than ‘honour all cards’). The practical reality, however, is that most local retailers, already captive to the cardsharps, have little capacity to use these discretions: the use of credit cards is now so entrenched as to be ‘coin of the realm’ and for many transactions credit cards are contrived to be the only ‘legal tender’. At best the impact of the reforms on credit card activity has so far been very marginal (and it is always a flight of imagination in Australia to suggest ‘more competition’ or ‘new entrants’ in the retail payments system).

The only sensible public reaction to this preliminary report is renewed calls for an independent review: the likely upshot of any independent review would see the primary responsibility for regulating the retail payments system (and the structure of the retail banking industry more generally) reallocated to a specially constituted financial services regulator, perhaps a separate division of the ACCC as competition regulator.

One would like the RBA itself to clearly acknowledge this: after some two ‘lost’ decades as the regulator, but having made little if any effective progress to reform the retail payments system, it is well beyond time for a different policy regime.

……….an emerging sense of failure

It has been fairly evident for some time, and in a few countries, that one possible basis of the ideal — a dominant local EFTPOS debit-card system – has been lost. Late calls by the RBA in Australia, and its counterparts in Europe and elsewhere, to save or newly develop linked national EFTPOS schemes seem destined to fail.

Frankly, if the schemes now operated globally by the terrible twins were pulled into line with domestic (and international) criteria of fair play, there would be no need to ‘rescue’ local, domestic systems: the come-lately realization that it would be a good idea to have (linked) national EFTPOS operations competing with the terrible twins is itself an abject admission of prior regulatory failure now beyond redemption.

Equally relevant, with the same banks being the key participants in all card schemes operating nationally, it could be expected that the pricing policies of all schemes would be coordinated in due course to achieve much the same mirror-image outcome evident with the twins’ international schemes now.

Why would local banks, participating in the rort of the community as associates of the terrible twins, now repent and agree to favour a fairer local system that was less profitable to themselves – please, give us a break?

The demise of Bankcard is a relevant precedent for Australia’s EFTPOS system: the banks will do whatever is most profitable for themselves.

Apart from the redundant bilateral architecture and the contrary fee structure of EFTPOS – features intended to advantage the four pillars over small banks and others – this system seems set for terminal decline with local EFTPOS cards supplanted by scheme debit cards issued by the internationals.

More importantly, if regulators have lost control of card fees for all cards, it will not be long before different fee structures (scheme fees and interchange fees) emerge for transactions on international cards, credit and scheme-debit, which will make redundant any required limits on interchange fees alone.

The report has a pervasive sense of the RBA, as the regulator, having lost the battle after being outpointed and outgunned by the cardsharps.

Implicit in this line of thinking is the long sensible conclusion that the only difference between credit cards and debit cards is the way in which the credit card product is contrived to be essential and then (over)priced by a cartel to exploit the community: so called free-credit and reward schemes were always and remain marketing tricks akin to a smoke-and-mirrors illusion.

As the card game newly embraces ‘scheme fees’ substituting for interchange fees, it is predictable that costs imposed on retailers and cardholders will increase while theadvertised benefits to cardholders – free credit and fly-by points — will be eroded with little reaction from a cardholder base already knowing they were practically worthless.

— a hollow threat is not a strategy

It is almost beyond comprehension that the RBA is now reduced to making a hollow-threat in appearing to protect the public interest in retail payments policy.

Against the backdrop of its apparent surrender, the RBA says it wants ‘the EFTPOS system ‘to be saved’ (and all that that implies); remnants of the ‘honour all cards’ rule removed and greater transparency around scheme fees and average interchange fees’: where is the credible operational content in that request?

The RBA goes onto say:

……………if these steps are not made, or ‘promised’ to be made, ‘interchange regulation would continue with a required narrowing in the spread of interchange fees, between credit cards and debit cards, from some 60 cents to 25 cents’: again, where is the substance in such a threat when the dominant schemes care little anymore about interchange fees per se (or credit cards per se) as they shift the emphasis to scheme fees (and scheme-debit cards) which are essentially the same thing? Never forget that reduced to its essentials a credit card is just a debit card with an overdraft line of credit – any remaining practical differences are wholly contrived to exploit the pricing power of the card-scheme cartel.

In the racing industry such a challenge is known as ‘a walk through hurdle’: just wait for the banks’ Swiss-cheese plan to save the local EFTPOS system.

Does anyone at the RBA – or anywhere else – truly believe that banks will voluntarily ‘improve the competitive environment’?Does anyone at the RBA – or anywhere else — truly doubt that the banks won’t spin and weave a persuasive smoke-and-mirrors story enabling the RBA to save face as it steps back from a humiliating defeat in a protracted regulatory battle fought without any sense of conviction or heart?

The only one-word conclusion to this charade is ‘’.

PART B: A WAY FORWARD

Ben Franklin probably said ‘a job not done remains to be done’ – or something similar.

Australia is ever more oppressed by banks become a law unto themselves, ever more powerful and ever more disdainful of a community left unprotected by its banking and competition regulators.

Day after day the community is regaled with politicians and regulators promising to outlaw abuses of market power associated with ‘cartels’; ‘predatory pricing’ and ‘tax lurks’.

Many consider the Australian banks to be past masters in perpetrating such offences with the many, nonetheless, not properly comprehending why such misconduct is not only allowed but actually aided and abetted by the very regulators – primarily the RBA – which the community believes was appointed to proscribe such malpractices and protect the public interest.

It was, accordingly, beyond the bounds of reasonable credibility to hear the new Treasurer vocally promoting the ideal of a competitive banking system while seemingly oblivious to the oxymoronic character of any expectation of such a practical outcome in Australia without a regulatory revolution.

Over recent years I have set out – including in submissions to the RBA – what I see as the mechanics of fundamental flaws in public policy settings conducive to abuses of market power by the banks.

I won’t labour the points again but again ask the RBA to reconsider their possible relevance to its loss of regulatory authority for the retail payments system — and the converse, initiatives to restore regulatory authority.

— two key points

Two key points, in summary, are:

The RBA should negotiate with the Australian Tax Office (ATO) to require banks to account for, and distribute to account holders as taxable income, the ‘deemed’ income inherent in banks bartering ‘free transactions for interest free deposits’ and giving ‘interest-free credit and flyer-point rewards’ on credit card purchases. It is beyond comprehension that any regulatory authority would expect the retail banking and payments system to function effectively while ever the four pillars are effectively subsidized extensively but unfairly – $ billions per annum — from the public purse. These hidden subsidies encourage banks to exploit their conduct of the retail banking and payments system in ways totally inimical to the public interest in its efficiency and fairness. The pressing need for reform on this front is a ‘no brainer’: banks will only start to pay attention to an appropriately ‘competitive’ alignment of costs and prices once their opportunity to exploit these tax-avoiding deals is curtailed.

The RBA, meantime, should cooperate with the ACCC to promote amendments to the Trade Practices Act to ensure the de-facto cartel arrangements underpinning joint-venture payment networks are tested against criteria of ‘maximum benefit’ to the community, not ‘net benefit’. A recommendation to this effect was made in 2002 in the Dawson Report reviewing the trade practices law. As things stand it is entirely inappropriate to allow the four pillars to operate cartels — credit cards, debit cards, EFTPOS and BPay — in ways which the RBA itself considers contrary to the public interest. The RBA (and ACCC) should similarly seek to join with counterpart trade practice authorities internationally to ensure network payment schemes operate in the public interest – the sense of this reform is underscored as the ‘terrible twins’ prepare to supplant conventional cash globally (and misappropriate seigniorage revenue) using conventional transaction cards ahead of introducing more sophisticated electronic-money alternatives.

WASHINGTON, June 27 MPC-Visa-fee-cuts Credit Card Fees on Gasoline Might Actually Be Higher, Not Lower, Under New Visa Program

WASHINGTON, June 27 /PRNewswire-USNewswire/ — Visa’s announcement yesterday regarding new interchange policies on gasoline sales shows that interchange fees raise gas prices, but it’s not clear what else the announcement means. If Visa is willing to admit that interchange fees are causing added pain at the pump, why won’t it admit its role in rising food and other consumer prices? Interchange fees cost Americans $42 billion last year – more than all other credit card fees combined. It inflates the cost of nearly everything consumers purchase whether they pay with plastic or cash.”While the devil is always in the details and we haven’t seen any details yet, it looks like the new structure for credit cards combines a higher fixed fee with a lower percentage fee,” said Hank Armour, President and CEO of the National Association of Convenience Stores. “The net result of this combination may actually be higher fees for those transactions under $60 for those customers using regular Visa credit cards without a rewards program.”

On debit card transactions, the cap on interchange may only apply to gasoline purchases of more than $97.50. That is a small number of transactions – especially because Visa banks reserve the right not to give gasoline retailers anything more than $75 on a sale.

Unfortunately, we may not know the impact for months because Visa has said this will only affect debit card transactions on gasoline in mid-July and won’t affect credit card transactions until October – long after the end of the summer driving season (and the opportunity for Congressional action).

While we welcome ANY recognition by Visa of the interchange fee pain, the confusion and potential negative effects of these changes might have been avoided if this were the result of a negotiation between merchants and Visa. H.R. 5546 and S. 3086, the Credit Card Fair Fee Act, would allow that to happen and ensure a market process for interchange fees with benefits to consumers throughout the country. Visa and MasterCard have a collective 80-plus percent market share and that gives them a stranglehold on retailers. The legislation would counteract that problem. Currently, rates are set in secret and the process is hidden making it practically impossible for retailers and consumers to know how much they are really paying in credit card fees, or why.

The Merchants Payments Coalition (MPC), UnfairCreditCardFees.com, is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit

ALEXANDRIA, VA – The nation’s 115,000-plus convenience stores will communicate their outrage over devastating credit card fees via pumptoppers that will educate consumers and Congress about the problem.

The National Association of Convenience Stores (NACS) announced that it will make pumptoppers available free of charge to retailers. Pumptoppers typically contain promotional messages about the store but these will communicate the industry’s fight against sky-high interchange rates.

NACS is urging retailers to put these pumptoppers in their promotional signage plans from August 1 to September 6, when Congress is in recess and members will be in their home districts.

Convenience stores sell an estimated 80 percent of the country’s gasoline, and the majority of stores (56 percent) are owned by one-store operators, as opposed to the less than 2 percent that are owned and operated by major oil companies. These stores are increasingly squeezed by low margins and escalating credit card fees; most are losing money when customers pay by credit card.

In 2007, credit card fees cost convenience stores $7.6 billion, more than double the convenience store industry’s profits of $3.4 billion. It has been much worse in 2008 as credit card fees have topped 10 cents per gallon, while the markup on a gallon of gas has averaged only 11 cents for the year so far. After factoring in all operating expenses, retailers lose money on every gallon of gas they sell when a consumer uses a credit card.

Both the House (H.R. 5546) and Senate (S. 3086) have introduced bipartisan legislation, the Credit Card Fair Fee Act, to examine credit card fees, specifically the interchange rate, which is the largest component of the credit card fees that retailers pay every time they accept plastic.

Credit card interchange fees are a fixed fee and a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used. These fees average 1.8 percent in the United States, which has the highest interchange rate of any industrialized country. The U.S. interchange rate is approximately three times the rate in Europe and four times the rate in Australia.

“The credit card fees that retailers pay are outrageous,” said NACS President and CEO Hank Armour. “Congress needs to see the pain that credit card fees are causing in their home districts,” said Armour. “In Washington, the credit card companies have used their outrageous profits at the pump to fund a massive lobbying effort to prevent fixing the broken system. It is impossible to match their virtually unlimited resources, so we need to take the message straight to where this pain is occurring – at the gas pump,” said Armour.

The pumptoppers that NACS has developed have two messages: “Tell Congress you want to know how much this fill-up cost you in credit card fees” and “That pain you are experiencing in part is caused by secret credit card fees.” Both ads encourage motorists to go to the Web site www.unfaircreditcardfees.com to send a message to their elected leaders. The artwork is available in a variety of sizes and can be downloaded at www.nacsonline.com/pumptoppers. For retailers who are unable to print the pumptoppers themselves, NACS has arranged a significant discount for retailers who want to order them from signage company GSP at www.popmanager.com/ccfees.html.

“The Credit Card Fair Fee Act, a bipartisan effort, would provide an opportunity for merchants to negotiate reasonable terms with the credit card companies and their member banks,” said Armour. “Right now there is no market for interchange fees. The fees are fixed by the banks, hidden from the public and forced on merchants in a take-it-or-leave-it offer. The Credit Card Fair Fee Act would create a market for interchange fees by allowing merchants and the card associations to negotiate on equal footing.”

“It is essential that Congress takes action on this legislation. Without Congressional action, they will increasingly see second- and third-generation family businesses in their districts that will have to close their doors as their livelihood gets siphoned off by the credit card companies,” stressed Armour.

-###-

Founded in 1961 as the National Association of Convenience Stores, NACS is the international association for convenience and petroleum retailing, representing more than 2,200 retail and 1,800 supplier member companies. The U.S. convenience store industry, with over 146,000 stores across the country, posted $577 billion in total sales in 2007, with $408 billion in motor fuels sales.

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WayTooHigh.com: The Credit Card Interchange Report, is edited by Mitch Goldstone, co-founder of California-based ScanMyPhotos.com, the international online photo preservation service.
Goldstone and co-owner, Carl Berman are also the lead plaintiffs and class representatives in a antitrust class-action litigation against Visa, MasterCard and major banks that was filed in 2005.
This informational web site was created to provide news and commentary updates only. None of the information posted on WayTooHigh.com is intended to constitute legal arguments; it reflects only the opinions of its co-editors and not of any other plaintiffs or other parties involved in the merchant antitrust litigation. The information is not guaranteed to be correct, complete, or current. We make no warranty, express or implied, about the accuracy or reliability of the information posted by WayTooHigh.com or at any other Web site to which this site is linked. (c) 2010